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Hyster-Yale Takes a Step Backward, But Will It Pay Off in Time?

The forklift maker saw revenue and earnings drop substantially, but strategic considerations played a big role.

Many industrial companies are vulnerable to the ups and downs of the business cycle, and folklift specialist Hyster-Yale Materials Handling (NYSE:HY) has definitely seen its stock price get tugged in different directions as it tries to navigate the tough macroeconomic environment in the global markets. Coming into Wednesday afternoon's first-quarter financial report, Hyster-Yale shareholders already expected to see a substantial decline in earnings from year-ago levels, but the company's results also included a somewhat unexpected drop in revenue. What investors need to know is whether the short-term effects that caused the declines will eventually pay off in better results down the road. Let's take a closer look at how Hyster-Yale did last quarter and whether short-term pain could lead to long-term gain.

Hyster-Yale has a big fallHyster-Yale's results showed how sensitive the company can be to temporary disruptions. Revenue fell almost 8% to $622.3 million, shocking investors who expected the company to grow its sales by nearly 2%. Hyster-Yale still managed to make money for the quarter, but net income of $13.9 million was down 37% from year-ago levels, and earnings of $0.85 per share fell short of consensus projections by more than a dime per share.

Hyster-Yale's lift-truck business, which represents substantially all of the company's sales, faced pressure from two primary causes. First, Hyster-Yale does a considerable amount of business overseas, and the strong U.S. dollar compared to the euro weighed on results, costing the company more than $33 million in revenue. Also, Hyster-Yale had already planned for reduced volumes due to its changing production facilities in Brazil from an old plant to a newly completed facility. Shipment volume dropped about 4%, but excluding the impact of Brazil's operations, shipments rose slightly, and European customers also chose to buy higher-priced lift trucks.

Hyster-Yale's bookings and backlog figures appear to support that theory. Bookings fell in dollar terms but rose by 2,400 units to 23,700 in terms of volume, and that helped push worldwide backlogs up more than 10% to 31,900. As the new Brazil plant starts to work up toward full capacity, Hyster-Yale should be able to start working that backlog back down and see a corresponding boost to revenue and earnings in future quarters.

Image: Hyster-Yale.

Nevertheless, Hyster-Yale does face some challenges. The company's acquisition of fuel-cell company Nuvera added $3.6 million in net losses to Hyster-Yale's bottom line and brought in revenue of just $1.2 million. In time, the company hopes that fuel-cell opportunities will bring in considerable amounts of business, but 2015 will be a year for ramping up and investment in the business without any expectation of substantial sales.

Can Hyster-Yale do better in the future?Hyster-Yale remains far from convinced that the forklift market will perform as well during the rest of 2015 as it did in the first quarter. The company still expects that Western Europe and the Middle East will provide the biggest lift to lift-truck demand globally, with Brazil, Japan, and Eastern Europe seeing weaker demand and other areas of the world expected to remain fairly flat.

Even with those general industry trends facing the company, Hyster-Yale thinks that it will see slightly different conditions in its own business, with Europe, North America, and the Asia-Pacific region driving unit-shipment growth for the remainder of the year. The company believes that customers will shift demand toward lower-priced forklifts, hurting revenue. Moreover, the strong U.S. dollar will likely hurt Hyster-Yale's results for the remainder of the year.

Fortunately, the company doesn't believe that it will take long for the new plant in Brazil to reach full operational capacity. Once that occurs, around mid-year, Hyster-Yale expects operating profit in the Americas to start climbing, and expected improvements in foreign-currency effects could help drive further growth.

Investors in Hyster-Yale need to see 2015 as a transition year, with the integration of Nuvera and the building-out of new production capacity in Brazil helping the company move forward with its long-term strategy. If share prices fall in response to short-term setbacks, then it could prove auspicious for those seeking to buy Hyster-Yale stock at bargain prices.

Author

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
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